I had a different take on the msft announcement. One seemingly small, but important point made in the msft release, was that you could order directly from msft, but at full price only - to get a better deal, go to one of their favored retailers.
I believe this may signal a strategy that suggests that msft does not intend to sell online EXCLUSIVELY direct to the consumer - like any manufacturer with an extensive network of retail distributors, going direct does not engender good relations.
By pricing at a premium, msft is taking a strategy similar to that of Nike when it went retail with its Niketown retail outlets. Many retailers were initially outraged, and feared Nike's own store sales would siphon sales from their stores. Nike's concept, however, was to use the stores principally as a showcase, a highly-interactive brand advertisement. Key to this strategy was a no discount policy, thereby pushing many consumers to other nearby retailers. The strategy worked, as nearby retail outlets realized significantly higher sales volumes.
Back to the point. Microsoft is clearly signalling a sensitivity to the retail channel by selling online only at full price, and in my mind, this substantially raises the odds that they will not sell their products via ESD in the future exclusively on their own site. They are likely to offer it at full retail, suggesting most consumers will go elsewhere to obtain better "street" prices.
The significance of this to DRIV is that: 1) msft will not look at direct ESD as a major profit center for selling a large share of their software, which means that they would be more likely to outsource their own ESD, and more importantly, 2) that online retailers will likely be the beneficiaries of sales volume from msft and other large software publishers in the future, and in turn, benefitting DRIV.
The argument for selling through retailers online rather than direct, is much the same as it is in the physical retail world ... online resellers will have greater economies of scale, margins will simply get pushed down to where they are more efficient than individual publishers can be (although lower overall infrastructure costs means that online retailer margins will be lower)... and that consumers would prefer to go to a single store to browse and purchase all available products, rather than go to a new store for every single purchase.
Thanks to everyone for the comments, concerns, and insights - it is helping me to deepen my analysis and understanding and increase my confidence in DRIV's market position. I hope some of my commentary is helpful to all of you as well. |
